Fixed Income

Investment Insights by our experts and thought leaders

Will Investors Be Ready When Chinese Bonds Go Global?

Most bond index providers have started to recognize China’s financial market liberalisation and reform efforts. We think it is only a question of time before they are included in the main benchmark indices.

Asia High Grade Credit – A better European approach to Emerging Market Debt

A separate allocation to Asia IG offers European investors a way to mitigate risk within their EMD exposure.

The Rise of Chinese FDI into ASEAN

Our senior fixed income portfolio manager in Singapore explains why he is bullish on ASEAN currencies for the long-term.

House View: Global Economic and Equity Reflation Despite Less Dovish Central Banks

Despite geopolitical risks and less dovish central banks, the Global Investment Committee remains moderately optimistic about the global economy and equity markets, while being cautious on global bonds.

Germany's Election Results – What now?

Despite the uncertainty surrounding the time it will take before the formation of a new government, we do not think there is risk of major policy change in Germany. The election outcome, however, will likely weigh on the aspirations of France’s Macron for deeper Eurozone integration.

Germany's Election Should Be Supportive

Our London-based Global Credit Portfolio Manager lays out the scenarios of the upcoming German election and its ramifications for select German credits.

China’s deleveraging – When and how will it end?

China’s dual goals of deleveraging and maintaining strong growth may not necessarily conflict, but they certainly pose a delicate balancing act for the government.

Asia High Grade Credit - A More Selective Approach

The rapid development of the Asia Credit markets provides new opportunities to improve the risk and return profile for investors.

The Global Investment Committee remains moderately optimistic about the global economy and equity markets, while being cautious on global bonds.

ESG and Credit Investing — What does the future hold?

Changing perception of ESG’s performance impact: An active ESG approach is now regarded as a catalyst for outperformance.

How would a Korean crisis impact Japan?

While highly unlikely, we examine the potential impact on Japan of a major crisis on the Korean Peninsula.

Japan in Motion: What does the future hold?

We believe that Abenomics is working, however we feel that its success cannot be determined by viewing government policy frameworks in isolation.

Green Bonds – The Next Global Disrupter?

Steve Williams, the Portfolio Manager responsible for Green Bonds in Nikko AM’s London office, examines how this burgeoning asset class is likely to develop into a mainstream part of global fixed income portfolios.

Forbes: Why The Yen Should Not Strengthen In A Crisis

“Any major crisis in the Northeast Asian region, especially one involving a crisis within Japan’s borders, is likely to be handled very aggressively by the Bank of Japan (BOJ), with it bending the rule-book as much as the Fed did during the Global Financial Crisis or as the ECB has done in the past five years.”

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

“We all have heard of the term 'interest rate repression' for how central banks have kept rates at ultra-low levels, but this has only been successfully maintained due to what I call 'inflation repression.'”

John Vail, Chief Global Strategist for Nikko Asset Management, contributes a regular column to Forbes.com

Japan’s Inflation and Monetary Policy Outlook

Our Tokyo Fixed Income team explains its view on the Japanese labor market and its effect on consumer inflation and Bank of Japan policy.

Five Charts to Watch

As commodity prices have risen, the Australian economy is set to benefit from these continuing gains.

House View: Continued Economic and Equity Reflation

The Global Investment Committee remains optimistic about global economy and equity markets despite their recent strong equity rallies and increased political risks.

Asia Credit - A New Major Global Asset Class

Asia’s Credit market has come a long way since the Asian Financial Crisis of 1998, having evolved into a large, deep and liquid market.

A Dynamic Approach to Managing Credit Risk

Global economic, credit and interest rate cycles are becoming desynchronised. In this paper, we introduce Nikko AM’s first generation default probability model for corporates.

Asian Credit Outlook 2017

In-depth report: Economic growth in Asia is expected to remain broadly stable in 2017. While there will be greater external uncertainties as well as country-specific challenges, Asian economies are, on balance, better equipped to deal with external pressures compared to a few years back.

Emerging Market Debt Outlook 2017

Our Senior Portfolio Manager for Emerging Market Debt in London forecasts that in 2017, this asset class could well match 2016’s achievement.

Turkey on a Knife's Edge

Our London-based expert on Turkey updates his views on the precarious situation there.

Global Credit Market Outlook 2017

As rates could rise further in 2017, we expect that a broad range of investment themes will help generate enough alpha performance to offset the rates impact.

Asia Credit - A Separate Allocation

Why Asia Credit should stand alone from Global Emerging Market Debt.

House View: Bullish on Global Equities and the USD in 2017

Nikko AM's Global Investment Committee's 2017 Outlook — More Economic and Equity Reflation, Despite Less Dovish Central Banks

How Trump seals China’s policy trilemma

Our China Fixed Income expert in Singapore expounds upon how the Trump election is forcing China into taking specific economic policies.

Five Charts to Keep an Eye On – Making sense of this unique investment environment

Following the US election, we have seen bond rates continuing to increase, a stronger US dollar, firmer commodity prices, and a US stock market at all-time highs. Is optimism around the US President-elect’s fiscal expansion masking the true deflationary picture?

Italian Referendum: Nikko AM Europe Fixed Income Commentary

We expect Italian assets to underperform until it becomes clear who will be able to form and lead a new government. Nevertheless the outcome of the referendum was already priced into financial markets.

Trump Win: Surprise, but Not an Accident

Neither Brexit nor Trump’s win was an accident – ‘the people’, in particular the working and middle classes, are purposefully and deliberately giving the political elites a thump on the nose.

It has continued to be a wild roller-coaster ride for investors, and unfortunately, it is not likely to be very calm for the foreseeable future. Investors must keep a keen eye on geopolitical risk and be ready to act if such appear to accelerate into a situation that could significantly impact markets.

Only central banks can break the cycle of ever-declining bond yields

QE policies have had a material impact on bond yields and valuations. We believe that the evolution of these policies will be more important than fundamentals in indicating when bonds can break the cycle of ever-declining yields.

Is this the end of the 35-year bond rally?

Many market commentators have been speculating that we are finally coming to the end of the bond rally that has endured for the past 35 years. It's worth noting that this is nothing new—we have heard similar suggestions many times before over recent years.

Attraction of Emerging Market Debt

Emerging Market reforms won't stop or pause with the current market recovery.

What does Brexit mean for Emerging Markets?

Following our analysis of the recent UK vote, our Emerging Market debt team in London discusses Brexit's potential ramifications for this asset class.

Brexit: Outlook for Global Fixed Income & Credit

Uncertainty after Brexit vote, but the correction in valuations and market volatility could provide buying opportunities in some fundamentally strong credits.

Brexit: Where to now for markets?

Although it is still too early to determine the full implications of Brexit over the longer term, in the short term, we can expect significant market volatility as uncertainty prevails, but this does not mean that investors should panic.

Global Oil Update: Continuing positive outlook or flash in the pan?

Our oil experts in London and New York update their bullish views in January with new facts, while retaining their positive intermediate-term view on oil prices.

Fed rate rise most likely in September, but could be delayed until 2017

Our global rates and currencies strategist in Australia lays out his dovish Fed scenario as an alternative to our house view. In it, he expects the Fed to wait until September or later to raise rates, and states his case that the Fed’s actions do not affect US bond yields.

Abenomics is Alive and Well

Our Chief Global Strategist explains the reasons why there is too much unjustified pessimism about Abenomics.

The Subtle Shift in Asian Currencies from the Dollar to the Renminbi

Our Asian currency expert discusses the potential ramifications of the increasing CNY-orientation for Asian currencies.

Which Matters More for Credit Spreads: Fundamentals or QE?

What is more important for credit spreads in the current environment: the fundamentals or central bank actions? Our research suggests that since 2010 the answer has been central banks and, in particular, the US Federal Reserve.

Global Credit Outlook

For the next 12 months, we are quite positive on performance prospect for global credit, singling out five investment themes.

G-3 and Chinese Economies Moderately Firmer in 2016

Nikko Asset Management's Global Investment Committee met on March 29th and updated our intermediate-term house view on the global economic backdrop, central bank policies, financial markets and investment strategy advice.

Fed in June and December, but ECB or BOJ Slight Easing

We expect June and December Fed hikes, but only mild further easing ahead for the BOJ and ECB. Meanwhile, we expect oil prices to creep higher through 2016 despite the stronger USD due to relatively firm economic developments in China and the G-3.

We expect that global equity and bond investing will be positive for Yen based investors due to Yen weakness, but for USD based investors, we are taking only a neutral stance on global equities due to a cautious forecast for US equities, whereas we are positive on Asia-Pac ex Japan, Japan and Europe. Meanwhile, we are moderately negative on bonds in each region when measured in USD terms, so we underweight them.

Is it time to get back into credit?

While a recession in the US is not our base scenario, the impact of such an event on credit exposure is worthy of consideration. In our historical analysis we've found that the driver of past recessions can provide important insight into which credit maturities are most attractive.

Globalisation has reduced US monetary policy independence

US monetary policy grows less independent as 2016 unfolds and risks to global growth abound in a rebalancing China, a deflationary struggle in Europe and whispers of a Brexit.

Our Global Credit Strategy: Seeking Services

Our Global Credit staff in London detail their rationale behind concentrating on service sector exposure globally.

Renminbi: A one-off devaluation or free float in 2016?

As we have seen over the past year in the equity market, the more Beijing wants to exert control, the more it slips away. Is pragmatism going to trump ideology in Beijing? In the current environment, the PBOC letting the RMB free float might not be so unbelievable after all.

It's All About the Dollar

In our view, the USD will soften when the Fed comes to accept the reality of slow-to-no growth globally and becomes more dovish in its language and approach.

The BOJ's Bold Move is Not a Shot in a Currency War

Unfortunately for the soundness of the sleep among BOJ-watchers, Mr. Kuroda believes that surprising the market is the best way to achieve his intended result.

Is Saudi Arabia Finally Winning the Global Oil War?

Our London and US analysts review oil prices from the supply and demand angle and they note that global demand growth remains high while global supply is narrowing, indicating that oilfs price swoon could be over.

What is the Outlook for the Yuan?

Our Singapore fixed income team expounds on the outlook for this clearly globally important factor.

The Fed was even more Dovish than Apparent in the Headlines

John Vail reflects on the Fed decision and the path forward. The Fed was even more dovish than apparent in the headlines.

US & China Economies Sturdy in 2016; So-So for EZ and Japan

Nikko Asset Management's Global Investment Committee met on December 8th and updated our intermediate-term house view on the global economic backdrop, central bank policies, financial markets and investment strategy advice.

Fed Normalization, but not ECB or BOJ

We only expect mild further easing ahead, especially as the ECB does not wish to cause a rupture while the Fed is hiking rates.

We forecast that Asia Pac ex Japan, Japan and Europe will outperform in the next six months, while the US should underperform and, thus, deserve an underweight stance vs. all other regions.

Divergent monetary policy in US and Europe: Can it last?

As we enter 2016, we believe the divergent monetary policy theme will continue -- with the major risk to global bond markets and Fed rate rises continuing to be Europe.

What's to come? - China's RMB as a global reserve currency

The IMF's decision to include the Renminbi into the SDR is a major push for the RMB to become one of the world's major reserve currencies.

Australia: Lower GDP growth and CPI should mean lower 10-year bond yields

Our lead Australian fixed income portfolio manager discusses her intermediate-term outlook for the bond market “down under.”

What Investment Themes Will Drive Credit Markets?

What Investment Themes Will Drive Credit Markets?

A better supply/demand balance in Europe, outperformance of “high yield“ globally, positive event-risk in the telecom sector and opportunities in local currencies, as well as other credit related investment themes, all present interesting opportunities for generating positive returns, even in a challenging environment.

Sifting Through The Ruble: Global Commodity Currencies

Our Nikko Asset Management fixed income experts, led by Simon Down, discuss the prospects for commodity currencies.

Zooming in on the Pacific Decade: China's Devaluation

A concentrated, stock-picking approach is the best way to serve a long-term investor's goal of capital appreciation

Fintech Evolution in China

The internet revolution is coming to the financial sector, addressing inefficiencies in current system and business models. In China’s case we are witnessing a combination of financial liberalisation with an internet revolution in the financial sector.

US rate rises unlikely to have significant impact on 10-year Treasuries

Even though the current term premium on US Treasuries seems too low, it is unlikely to rise significantly unless offshore bond yields start to rise.

Why did China devalue the renminbi?

While RMB weakness will likely persist for a few months, we don't expect the currency to devalue more than 10% versus USD and we maintain our confidence that the currency will be included into the IMF SDR basket in a year from now.

Views on the China equity market selloff – from an Asian Fixed Income perspective

The sharp equity market correction in recent weeks after a very strong run over the past year will not have a crisis-level impact to the broader economy.

The Implications of the RMB Inclusion in the IMF SDR

The IMF has been supportive of China's attempt to be included, but has not indicated that it recommends it. Furthermore, there is a risk that most of these reforms are too new for the IMF to judge whether they are effective or sustainable.

Bond market sell-off may look like 2003, but it shouldn't be as bad for US Treasuries

Although the recent bond market sell-off may remind the market of 2003, we don’t believe US bonds will be as badly affected. By comparing the worst US bond sell-offs since 2003, we estimate that the 10-year US Treasury yield could hit a high of 2.8-3.2% by October.

Will US rate hikes weigh on risk assets?

Real yields and inflation expectations currently suggest exceptionally low growth and low inflation far out into the future.

Does the price action of bunds signal an end to ultra low rates?

We do not expect the recent steepening of the bund yield curve to be the beginning of a sustained new trend. Moreover, Eurozone and German economic data, albeit improving, are not sufficient to support the higher bund yields on a sustained basis.

Did Asia's Central Banks Engage in the Global Currency War?

Since the Fed starting hinting at the normalization of interest rates a year ago, Asian central banks' foreign reserve accumulations - except for India and Hong Kong - have either incurred substantial losses or remained flat.

Recent yield rises don’t necessarily signal the end of bond market rally

With many markets having rallied from major support levels when they were in highly oversold positions, we believe that bond markets should stabilise or rally from current levels.

Low oil prices: Saudi Arabia can afford to bide its time

Oil-producing countries have seen the largest drop in their foreign exchange (FX) holdings over the last year. In our view, Saudi Arabia can afford to handle oil prices at their current level for some time but ...

US Federal Reserve faces headwinds as it starts to raise rates

Interest rate and foreign exchange volatility has begun to increase as the market anticipates the time when the US Federal Reserve will start to reduce monetary accommodation and raise interest rates.

Regional Equity and Asset Class Forecasts

Coupled with our expectation for global bond yields to rise moderately, we maintain our overweight view on global equities vs. bonds.

Will deflation or inflation be the global focus for 2015?

In 2015, markets will be looking for any pick up in European and Japanese inflation as a result of their QE programmes. With growth picking up, we may start to see signs of a rise in US inflation.

Australia: Japanese and European QE likely to subdue bond yields and increase currency market tensions in 2015

The key theme of the past few years has been quantitative easing. Although the US has come to the end of its version of this experiment, QE programmes have begun or are about to begin in Japan and Europe.

What will happen to US Treasuries if Japanese government bond yields go to zero?

In a pre-GFC and pre-QE world, zero or negative interest rates on a German, Japanese or US 10-year bond would have been considered highly implausible. However...

Implications of the ECB's quantitative easing program for interest rates and currencies

ECB's QE: The major question is, will this program work given the European model of debt creation is via the banking system and not the bond markets?

As we move further away from the turbulent period between 2007 and 2009, interest in credit has increased rapidly as investors globally search for extra return in a low yield environment.

Rate cuts down under?

If the RBA does cut interest rates, it is likely that they will make more than one cut, so we could see Australia's official cash rate at 2.00% by the second quarter of 2015.

Green Bonds Go Mainstream

2014 has become a landmark year for green bonds, having become one of the few sustainable investment instruments to reach a suitable scale and poised to enter the mainstream for global institutional investors.

Australian Fixed Income: Credit Commentary - October 2014

Physical credit spreads have remained at reasonably tight levels due to the ongoing search for yield — although global uncertainty in the Middle East, fears about Ebola, and re-emerging concerns about Europe have generated negative sentiment.

Australian Fixed Income: Market Commentary - October 2014

The Australian economy seems to be struggling to achieve traction as the mining boom transitions from a capital expenditure phase to a shipment phase.

No sovereign bond bubble but perhaps a new conundrum

Prior to the global financial crisis, nearly $17 trillion of developed nation bonds were rated AAA. Now there are less than $2 trillion. Not only has supply been restricted, but also diversity, with the number of AAA rated countries falling from 15 to 9.

Australian Fixed Income: Credit Commentary - September 2014

In the Australian credit market, the relative lack of supply compared with demand continues to cause spreads to tighten in the physical market offsetting the risks of an unstable geopolitical environment.

Australian Fixed Income: Market Commentary - September 2014

Reasons for the recent weakness in the AUD include a fall in the iron ore price, the rally in the US dollar, weaker Chinese data, and indications that the Reserve Bank of Australia is considering macroprudential controls.

Australian Fixed Income: Credit Commentary - August 2014

Credit spreads generally continued to tighten in August, although Australian physical spreads were mainly flat over the month.

Australian Fixed Income: Market Commentary - August 2014

At its 2 September meeting, the Reserve Bank of Australia again left the official cash rate on hold at 2.50%, and the Australian Industry Group’s Performance of Manufacturing Index slipped back into negative territory in August, following a brief stabilisation in July.